What final salary actually means
A final-salary pension works out your annual income in retirement from two things: your pay at or near the end of your service, and how long you served. Take the pay, multiply it by your years, apply the scheme's fraction, and that is your pension. The key idea, and the one that gives the design its name, is that the pay used is your pay late in your career rather than an average of everything you earned along the way. Your early years as a junior rank are revalued up to the level of your final pay, which is what makes this type of scheme so well regarded.
I spent years explaining this across the desk in unit pay and pensions admin, and the phrase that landed best was this: in a final-salary scheme, your last good pay rate writes the cheque for your whole career. If you finished on the pay of a Warrant Officer, every qualifying year you served, including the lean ones at the bottom of the pay scale, is valued as though you had always been on that rate. That is a genuinely powerful feature, and it is the heart of why people who reached a high rank late tend to do so well out of AFPS 75 and AFPS 05.
One thing to fix in your mind from the start. Final salary describes how the pay is fixed for the sum, not the whole calculation. The fraction the scheme uses, the years that count, any scheme maximum, the automatic lump sum and your pension age all sit alongside the final-salary pay basis. Read final salary together with those terms rather than on its own, and you will avoid most of the confusion I used to untangle.
How final salary works across AFPS 75, 05 and 15
Two of the three main Armed Forces schemes are final salary, and one is not. AFPS 75 and AFPS 05 are both final-salary schemes. AFPS 15, which every serving member now builds, replaced the final-salary design with a Career Average Revalued Earnings, or CARE, approach for service from April 2015 onwards. So whether final salary applies to you depends entirely on when you served and which scheme your service sits in.
AFPS 75 is final salary with a twist. For officers OF-6 and below and for other ranks, the pension is based on the representative pay rate for your final pensionable rank, not the exact salary you personally drew, multiplied by your length of reckonable service. It builds up to a maximum of 48.5% of that representative pay over a full career, which is 34 years for officers and 37 years for other ranks. Because it is rank-based, two people who leave at the same rank with the same service normally get the same pension, which is why I always told people their final rank mattered enormously.
AFPS 05 is a cleaner version of the same idea. It accrues 1/70th of your final pensionable pay for every year of reckonable service, up to a scheme maximum of around 57% of final pay, which is reached at 40 years. Both AFPS 75 and AFPS 05 pay an automatic tax-free lump sum of three times the annual pension on top. AFPS 15, by contrast, banks 1/47th of each year's actual earnings into a running pot and revalues it for inflation, so there is no final-salary uplift and no automatic lump sum. Understanding which of these is building your pension is the first job before any sums are done.
Why the final-pay link is so valuable
The reason final salary is prized is the uplift it gives to your early service. In a final-salary scheme, a year you served fifteen or twenty years ago, on a junior rate of pay, is recalculated as though you earned your final pay in that year. A late promotion therefore does not just improve the pension you build from that point forward; it lifts the value of every qualifying year you have already served. That is a retrospective boost that a career-average scheme simply cannot give.
This is exactly why the timing of promotions matters so much under AFPS 75 and AFPS 05. Someone who is promoted hard in the last few years before leaving can see the value of their whole pension jump, because the higher final pay flows back across the full span of their service. Under AFPS 75 the same effect runs through the representative pay for your final rank, and under AFPS 05 it runs through your final pensionable pay, but the principle is identical: your end position writes the value of the beginning.
It is worth being honest about the flip side. The final-salary link works against you if your pensionable pay falls near the end of your service, for example through a move that reduces your pensionable earnings, because the lower final figure is then applied across your whole career too. CARE schemes like AFPS 15 protect you from that downside by locking in each year's earnings as you go, which is one of the trade-offs to weigh when you compare the two designs. Neither is universally better, and which suits you depends on the shape of your own career.
A worked example you can follow
Here is an illustrative example using round figures only, so the method is clear. It is not a forecast for any real person, and your own pay and service will give different results. Imagine final pensionable pay of £47,000 and 20 years of reckonable service, and let us run those numbers through the AFPS 05 final-salary calculation, which is the easiest of the schemes to show on paper.
On AFPS 05 the accrual is 1/70th of final pay per year. So £47,000 multiplied by 20 years, divided by 70, gives an annual pension of about £13,429 in round terms. Notice that the whole calculation uses the £47,000 final figure, including for the years you served on much lower pay early on. That is the final-salary link doing its work. Because AFPS 05 carries an automatic tax-free lump sum of three times the annual pension, this pension would come with a lump sum of about £40,286 on top.
Now picture the same person reaching that £47,000 only by a promotion in their final year. Under final salary, that promotion lifts all 20 years to the £47,000 rate, not just the last one, which is what makes late promotions so valuable in these schemes. The same illustrative pay and service run through AFPS 15, at 1/47th, would give a larger headline pension of about £20,000, because the fraction is more generous, but AFPS 15 pays no automatic lump sum and has no final-salary uplift, so the comparison has to weigh income and lump sum together rather than just the top-line figure.
Common misunderstandings about final salary
The most common mistake I saw was assuming final salary means your actual last paycheque, down to the penny, including every allowance. It does not. The pay used is your pensionable pay near the end of service, and most allowances and specialist pay are usually excluded, so your pensionable pay is often a little lower than your gross pay. On AFPS 75 it is the representative pay rate for your rank rather than your personal salary at all, which surprises people who expect their exact pay to feed the sum.
The second misunderstanding is thinking that AFPS 15 is a final-salary scheme because it is the current scheme. It is not. AFPS 15 is CARE, which banks a slice of each year's earnings and revalues it, with no final-pay link. If you joined from 1 April 2015 you have only ever been in a career-average scheme, and final salary will not apply to your service at all unless you also hold legacy AFPS 75 or AFPS 05 service through the McCloud arrangements.
A third trap is forgetting the scheme maximums. Final salary does not keep adding pension at the same rate forever. AFPS 75 caps at 48.5% of representative pay over a full career of 34 years for officers or 37 years for other ranks, and AFPS 05 caps at around 57% of final pay at 40 years. Serve beyond those points and the extra years stop building pension in the same way, so a plan that assumes endless accrual will overstate what you will actually receive.
How to check your own position
Start by working out which scheme, or schemes, your service sits in, because that decides whether final salary applies to you at all. If you joined before 6 April 2005 you were in AFPS 75. If you joined between 6 April 2005 and 31 March 2015 you were in AFPS 05. If you joined from 1 April 2015 you have only ever been in the CARE scheme, AFPS 15. From 1 April 2022 every serving member builds AFPS 15, so most people with older service now have a final-salary legacy pension sitting alongside a growing career-average one.
Next, anyone who served during the remedy period of 1 April 2015 to 31 March 2022 has a choice to make under the McCloud remedy. You can elect for that period to count towards your legacy scheme, AFPS 75 or AFPS 05, which is final salary, or towards AFPS 15, which is CARE. That choice is set out in a Remediable Service Statement, and because it changes how the final-salary link applies to those years, it can move your pension, your lump sum and your Early Departure Payment. It is worth modelling both ways rather than guessing.
Then identify the pay the final-salary calculation will use. For AFPS 05 it is your final pensionable pay; for AFPS 75 it is the representative pay rate for your final rank. Put realistic figures through a calculator to see the shape of the result, and treat the output as an estimate to inform your thinking. When you need a figure you can rely on for a real decision, request an official forecast from Veterans UK using form 12 if you are still serving or form 14 if your pension is preserved. This site is independent and not affiliated with the MOD, Veterans UK or JPAC, and it provides estimates rather than regulated financial advice.
Tax treatment and the automatic lump sum
The pension income a final-salary scheme builds is taxable as earned income once it comes into payment, in the same way as a salary. Once in payment it is index-linked each year to protect its buying power, with pensions in payment rising 3.8% from April 2026 in line with CPI. The final-salary basis fixes the starting figure, and indexation then carries it forward through what is often a long retirement, so the value of getting the starting figure right compounds for the rest of your life.
Both final-salary schemes pay an automatic tax-free lump sum of three times your annual pension when your pension comes into payment, and you do not have to give up any income to get it. This is a meaningful difference from AFPS 15, which pays no automatic lump sum at all; under AFPS 15 you would have to commute up to a quarter of your pension at a fixed rate of about £12 of cash for every £1 of yearly pension given up, which permanently reduces the income. So when you compare a final-salary pension with a CARE one, the automatic lump sum is part of the package and should not be overlooked.
On AFPS 75 there is a timing quirk worth knowing. Where the scheme pays an Immediate Pension for long service, the pension is held flat until age 55 and then increased to catch up with inflation, with all the past increases applied at 55. That does not change the final-salary basis of the sum, but it does affect when the index-linking bites, so factor it into any long-term plan rather than assuming the pension rises every year from the day it starts.
How final salary relates to other AFPS terms
Final salary is one of two ways the Armed Forces schemes fix the pay your pension is built on, and CARE is the other. Final salary, used by AFPS 75 and AFPS 05, sets the pay near the end of your service and applies it across all your years. CARE, used by AFPS 15, builds from each year's actual earnings and revalues every slice for inflation. Seeing these two as a pair is the clearest way to understand the whole pension landscape, because almost every other term hangs off one design or the other.
The terms you will meet alongside final salary all build on it. Pensionable pay is the figure the final-salary calculation uses. The accrual rate is the fraction applied to that pay, 1/70th in AFPS 05 or the rank-based build to 48.5% in AFPS 75. The automatic lump sum is three times the resulting annual pension. Early Departure Payments, for those who leave before pension age with enough service, are calculated from the pension the final-salary basis produces, and index-linking then protects that pension once it is paid. Remediable service is where the final-salary and CARE worlds meet, through the McCloud choice.
If you take one thing from this page, take this sequence. Work out whether your service is final salary, CARE, or a mix of both. Confirm the pay the final-salary calculation will use, and remember it is pensionable pay near the end of service, not your full gross pay. Then model your position with a calculator to get the shape of the result, and get an official forecast from Veterans UK before you make any decision that depends on the number. That is how I steered people through it at the desk, and it still holds good.